Gen Y Finally Begins to Value Loyalty

Loyalty marketing-research firm Colloquy has released a follow-up to its 2007 benchmarking study on loyalty programs. This year's survey included the same questions as last year's, according to the firm, but also added questions specifically pertaining to the economy's effect on consumers' participation in loyalty programs. In the U.S. overall, participation jumped 19 percent year-over-year, with the most significant increase exhibited by Millennials (people between 18 and 25 years of age), among whom the level of participation spiked by nearly 32 percent.

The April 2009 study, "After the Meltdown: Consumer Attitudes and Perceptions About Loyalty Programs in the Post-Recession Economy," is based on interviews with 2,152 consumers, and focuses on participation in loyalty-rewards programs among six demographic segments, listed here in descending order of participation level:

Demographic

Description

% engaged in loyalty-rewards programs (2008)

% engaged in loyalty-rewards programs (2007)

Affluent

head of household with annual income of $125,000+

87.4

79.8

Core Women

female, 25–49; annual income, $50,000– $125,000

77.3

60.0

General Population

statistically distributed sample of the U.S. overall

67.7

57.0

Seniors

60+

60.8

54.2

Millennials or young adults

18–25

57.9

44.0

Emerging Hispanic

Hispanic origin; 21+; annual household income, $40,000 or less

47.0

41.4

Moreover, the study focused on loyalty programs in three key verticals:

financial services;

retail; and

travel.

The loyalty-reward industry as a whole, says Colloquy Editorial Director Rick Ferguson, has had to cope with the same economic pressures as everyone else. Companies are trying to squeeze as much value as possible out of their loyalty programs -- to the disadvantage of the consumer: slashing benefits, making rewards harder to earn, raising membership fees. In other words, many loyalty programs are now operating contrary to their supposed purpose of providing additional value to the company's best customers.

Despite what might be seen as poor treatment, customers across the board report an increase in their participation in "rewards programs," which Colloquy defines as programs that "offer points, miles, gift certificates, discounts off purchases, cash rebates, or that require you to make/track purchases in order to receive special benefits." Only a recessionary period can make this behavior seem logical. "They're attempting to consolidate their other spending with their favorite programs," Ferguson says, "[in order to] get those additional benefits and help stretch their budgets further."

This past June, Colloquy released its 2009 Loyalty Census, which reported that membership in loyalty programs rose to 1.8 billion, up from 1.3 billion in 2007. The average U.S. household is a member of 14.1 loyalty programs, according to the report, but actively participates in only 6.2 of them. A year ago, the average household was a member in 12 programs, and actively participated in 4.7.

Millennials exhibited the largest jump in rewards-program participation on a percentage basis, with a 32 percent increase in their rate of participation. Even so, Millennials' rate of participation (57.9 percent) remains relatively low; the only segment in Colloquy's study to participate at a lower rate were emerging Hispanics (47 percent, up from 41.4 percent in 2007). Still, these two groups indicate the highest rate of interest in enrolling with new loyalty programs -- 27.4 percent of Millennials and 28.3 percent of emerging Hispanics -- in order to earn more value. Again, the economic climate may have had a direct impact on results: 46.4 percent of Millennials and 39.8 percent of emerging Hispanics claim that loyalty programs have become "more important" because of the recession.

Ferguson credits the large percentage jump on the low adoption rates these two groups had to begin with. Affluents, on the other hand, have less "wiggle room," participating in more programs for rewards cards and frequent-flier miles. Compared to the Affluents, the Millennials have less spending power, are less likely to have established careers, and aren't carrying as many credit cards. Therefore, they're more likely to join rewards programs in the retail sector than in travel or financial services. This opens a huge opportunity for retailers, according to the study, particularly because this cohort of young adults is far larger than the corresponding group that preceded it.

Ferguson says that the results of the study were reassuring for the loyalty-marketing industry. "It was good news to us," he says -- so much so, in fact, that he says marketers have been spared having to blindly cut loyalty-programs benefits in favor of changes that can either:

help retain existing customers; or

lure customers away from competitors.

"You should be focusing, if anything, on redistributing some marketing dollars toward these programs," Ferguson says. "Establishing relationships is even more important than it was before."

Of course, Ferguson is not advising companies to launch a loyalty program just for the sake of it. Ask yourself: Do you have a big problem with customer churn? Are customers leaving for the competition? Are your prices higher? Is your customer service broken? "Those are some things a loyalty program can't fix," Ferguson says. The right time to launch a loyalty program, he says, is when everything else is working well for you.

Companies that are successful with a loyalty program aren't the ones that think of it as a marketing campaign, or as a customer service initiative, Ferguson says. Rather, they are the ones that incorporate consumer loyalty at the enterprise level: Best Buy's Reward Zone and Harrah's Total Rewards are as much about the customer herself as they are about collecting data to create better customer experiences through improved store layout or relevant coupons.

It all comes down to making the customer feel important, Ferguson says, and making sure that they consider the money they spend with a company is worth every penny. "The commitment to getting to know your customer on the individual level -- that's what makes the difference," he says.

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Companies often offer loyalty programs that focus on hard benefits to retain customers, but hard benefits are sometimes not enough. The benefits must have a high-perceived value from the customer's perspective.

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